While most of the content and discussion about the Employee Retention Credit (ERC) is about businesses who can show a “significant decline in gross receipts” year over year from 2019 to 2020 and 2020 to 2021 there is an important exception benefitting businesses started during the pandemic.
Deemed “Recovery Startup Businesses,” these businesses started after February 15, 2020 are eligible to claim ERC if they meet a few simple restrictions. More importantly, they qualify for an extra quarter of eligibility, through the end of the year on 2021, where other businesses’ eligibility ends with the third quarter of 2021 (end of September).
The IRS defines a “Recovery Startup Business” as “any employer (A) which began carrying on any trade or business after February 15, 2020 and (B) for which the average annual gross receipts of such employer…for the 3-taxable-year period ending with the taxable year which precedes the calendar quarter for which the credit is determined under subsection (a) does not exceed $1,000,000.”
In short, businesses started during the pandemic are eligible if they have less than one million in gross receipts before the quarter that they are claiming the ERC. The rest of the requirements are the same in terms of the amount of credit that is possible per year and per quarter. For 2020 that amount is 50% of qualified wages paid per employee with a maximum of $5000 per employee for the year. For 2021 that amount is 70% of qualified wages paid per employee with a maximum of $7000 per employee, per quarter. There is a 2021 maximum per employee for the year of $21,000.
Put together – if you are a new business and you started your business in 2020 with total receipts under $3 million, you could claim up to $26,000 per employee! That’s not a bad source of additional funds.
The trick, however, is claiming it. The process can be complicated and there are multiple steps you need to make sure you complete in the restating of your taxes from filings from those years. This is done in Form 941-X from the IRS. If you’d prefer though, the ERC Digital process streamlines the submission. You can go here to get started. ERC Digital makes evaluating your qualifications for ERC and the submission process easy, whether you’re a longstanding business or whether you’ve just gotten started in the last few years. What’s more, you can chose how you want to proceed – whether you want ERC Digital to submit on your behalf or if you want to get a ready-prepared set of documents for you to take to your tax advisor.
If you’re a recently started business the time is now to evaluate your ERC eligibility and claim you deserved tax refund! Find out more by contacting ERC Digital today.